Saturday, August 29, 2009

Why community currencies?

by Deirdre Kent

There is mounting evidence and increased awareness that the world is in serious trouble, environmentally, socially, and economically. In most cases we’re well aware of what actions are required in order to address the problems; the trouble is that there never seems to be enough money to carry out necessary remedies!

People often fail to make a connection between environmental degradation or social disintegration and the design of our money system.

At the heart of the money shortage is a monetary system that drives exponential growth, of everything! Exponential growth cannot be sustained on a planet with finite resources. The shortage of money comes about because most of the money we use has been created by commercial banks as interest bearing debt. Since the principal has been created but not the interest, people and firms are obliged to compete with one another to find the money to pay the interest, causing some at least to go further into debt, and putting enormous pressure on natural resources.

Each year the total money supply must increase by at least the amount of interest demanded, increasing the debt burden in every indebted sector - company, credit card, student, mortgage, and hire purchase. To recoup the interest on debts, businesses build into their prices a percentage for interest. The result is that those who are net debtors pay more on the combination of their shopping baskets and their debt than they can ever earn from interest on their savings or investments. One result is that money is constantly being transferred from the many net debtors to the few net creditors, widening the gap between rich and poor.
'Closing the Gap' becomes an impossibility.

The money supply is forced to increase exponentially and economic activity must constantly expand to avoid inflation. This demand for ‘growth’ in turn brings escalating pressures on society and the environment. The driving force behind the economic growth imperative is the interest bearing debt money system, a neglected factor in the sustainability discussion.

Money as a measure that represents finite resources is at odds with a system based on exponential growth. With this system the business cycle of 'boom and bust' is inevitable and an inflation rate persistently as high as 3% erodes the value of money for everyone – business and professional people, teachers, nurses, those on salaries, those on benefits or in retirement.

Although a great deal of attention has been paid to reforming national and international currencies, a quiet, unassuming worldwide movement to reclaim monetary democracy at a local level has begun – namely the movement to create local currencies.
Living Economies believes that an essential ingredient of an abundant, sustainable and just economy is interest free money at every level - international, national and local, a belief at the heart of the world wide development of thousands of community currencies over the last 20 years.
In a culture where the means of exchange is dominated by supranational and national currencies like the US dollar and the Euro most people fail to appreciate the potential power of currencies designed for regional and local use.

In the face of the increasing inability of the present monetary system to satisfy the needs of people and protect the environment, the introduction of a comprehensive range of currency systems will allow people to choose the one most suited to the nature of a particular trade. Recently developed smartcard technology can accommodate up to five different currencies simultaneously. Whereas the national currency is kept artificially scarce to maximise profits for the banks, local currencies have the advantage of being in sufficient supply for all desirable trades. With plenty of local currency in their purses - whether electronic or real - shoppers can really choose to buy local.

A second advantage is that it gives people ownership of their currency, notes created for a particular community give them identification with place. Thirdly, with an abundant and interest free currency designed for local exchanges, retailers can choose local suppliers, maximising self-reliance and reducing unnecessary transport costs. Community currencies will therefore create incentives for import replacements.

A fourth advantage is that manufacturers and primary industries, freed from paying interest on their own currency, can then choose to make longer term commercial decisions. This will favour, for example, organic production of food and the manufacture of more durable goods. Importantly, in an age where increased automation and new technologies are creating mounting underemployment and joblessness, a variety of sufficient local currencies will increase employment opportunities, helping stem the tide of increased social disruption

Benefits derived from a change to interest free money and the creation of diverse and well designed complementary currency systems will flow upwards from local, through regional, national, and supranational levels, and in the process diminish the gap between rich and poor. Additional benefits include increased importance of traditionally undervalued activities, discouragement of environmentally destructive activities, increased support for small enterprise development and the strengthening of social relationships.
The potential positive impact of community currencies on the environment and on society will be profound. At the same time, developing the best working models possible will provide economic ‘life rafts’ should there be collapse in the global financial system.


  1. Excellent post.


  2. Deirdre Kent: Why community currencies?

    JCT: An article too good not to cite. I've posted an analysis at my blog at